Logically, AO’s obligation to fulfill assignments of the founder (stake holder) at the regulated prices should be compensated by advantages proceeding from its status in comparison with public autonomous non profit organizations. However, the packet of draft bills not only does not envisages such advantages but on the contrary allows providing public autonomous non profit organizations with additional advantages re lated to ownership rights. For instance, according to original version of the draft bills, real assets and especially valuable personal assets should be assigned both to public autonomous non profit organizations and AO95 actually on the same equal rights. In the currant version of the Public autonomous non profit organizations were to be given in lease or given at a re duced rate or for a free use. Autonomous organization was to receive it in operational draft bill on public autonomous non profit organization the norm regu lating property, which can be assigned to public autonomous non profit organizations in ownership has been eliminated. This situation will allow free privatization of public real assets and fixed capital assets without public autonomous non profit organizations bearing responsibility to provide free of charge social services when the founder (stakeholder) has no right to receive proceeds from the property exploitation.

When the draft law lacks provision regulating in what cases public in stitution is subject to reorganization into AO and in what cases in public autonomous non profit organizations, there always remains the risk that the choice of reorganization status will result from individual deal concluded between public institution and its founder. Naturally, under such situation the most advantageous version of reorganization will be set for the most influential public institutions, whereas the less influen tial ones will be held responsible to provide social services at the price rates known to be below the costs incurred. In these circumstances one of the most important objective of the reform will not be achieved: crea tion of incentives for competition between public institutions under re organization, which should guarantee reduction of costs incurred as a result of social service delivery.

Another shortcoming of draft laws consists in the fact that the foun der’s right to set compulsory assignments for AO (fulfillment of which can be loss making) is not accompanied with its bearing full responsibility for liabilities. Moreover, it is hardly possible that this legal norm can be implemented because any legal entity bearing full responsibility for its obligations is protected by the legislation from the dictate by its founders. For example, despite the general provision under which founders (stakeholders) are not liable for the legal entity’s liabilities Item 3 Article 56 of the Civil Code provides for holding founders (stakeholders) liable on the subsidiary basis for the legal entity’s liabilities in case the bankruptcy of such a legal entity was the result of fulfillment by it of compulsory assignments of its founders (stakeholders). So, despite the organizational and legal status of reorganized public institutions, the government is not in a position to give them unilaterally compulsory assignments in respect of provision of social services without running the risk of becoming liable on the management. At the same time, lease, free use and operational management do not en visage independent (without consent from the owner) disposal of the property.

running the risk of becoming liable on the subsidiary basis for their li abilities in case the bankruptcy of such an entity was the result of fulfill ment of those instructions.

Finally, ban on joint founding of public autonomous non profit or ganizations and AO by different legal entities and public legal entities seems unjustified. Such ban significantly reduces possibilities for at tracting of investments into public autonomous non profit organizations and autonomous organizations. Regarding public institutions ban on joint formation is dictated by the reform of division of powers between the levels of the budgetary system. This reform presupposes full re sponsibility of government bodies of each level of government for its expenditure obligations, including responsibility to finance institutions, which are in its ownership. However, the concept of the budgetary sys tem restructuring does not envisage founder’s obligation to finance newly founded organizations. Founder’s obligations with relation to PANO and AO are limited by covering the costs of social services deliv ered by them and, consequently, can be co financed from different sources.

Taking into account the fact that restructuring of the budgetary sec tor directly touches the rights of the work collective as well as consum ers of social services, it is highly risky to initiate the wide scale reform without defining more exactly its concept. In these circumstances it is expedient to choose one of the following strategies:

1) To postpone implementation of the new organizational and legal status in the budgetary sector prior to defining more exactly the con cept of the reform and enactment of new federal laws in this sphere.

In order to initiate a large scale budgetary network restructuring, it is necessary to solve, in particular, the following issues:

Specify grounds for the selection of the option for the reorganiza tion (not necessarily to do it in the law but in any case the law should have a reference to a normative act, which determines such grounds and the draft of a corresponding normative act should be developed);

Balance the status of PANO and AO. In particular, it is necessary to envisage that real assets and particularly valuable property earlier under operational management of a public institution should be assigned to PANO only of lease basis. This will allow avoiding cases of free privatization of such property and its expropriation for debts.

Moreover, it is expedient to envisage differentiating leasing condi tions depending on public autonomous non profit organization’s par ticipation in fulfillment of the government social order. However, the option has a disadvantage, which consists in the need of transfer of the above mentioned property from the balance of the entity established in the course of reorganization of the public institution to the balance of the Ministry of Public Property. At present, lessees of state real prop erty depend to a great extent on the Ministry of Public Property, which can unilaterally change the rent rates and other material terms of the lease. In order to exclude such situation the Government of the Russian Federation need to approve adopt a model contract for the lease of state property for PANO.

Clearly define the circle of organizations, which are not subject to reorganization.

There is a need to preserve institution in its current form if it is a monopolist on the local market and provided by it social services must be delivered regardless of costs incurred. This condition is important, first of all, with respect to the institutions of general, ini tial and secondary vocational education and health care.

Envisage joint formation of public autonomous non profit organi zations and autonomous organizations by different government bodies (municipality) and (or) private persons.

2) Initiate experiment on a partial implementation of the new organ izational and legal forms in separate branches of the social sector within legal possibilities provided by the current federal legislation.

According to the Federal Law “On Non profit Organizations” institu tion can be reorganized into a foundation, autonomous non–profit or ganization, economic entity. In order to avoid changing essential type of activity, it is not expedient to reorganize public institutions into eco nomic entities. Remaining options are: foundation and autonomous non profit organization (hereinafter ANO), which are very similar.

Foundation is a non profit organization without founders (stake holders), which is founded by citizens and (or) legal entities by voluntary material contributions and pursuing social, charitable, cultural, educa tional and other social useful goals. Autonomous non profit organiza tion is a non profit organization without founders (stakeholders), which is founded by citizens and (or) legal entities by way of voluntary material contributions for the purposes of providing services in the spheres of education, health care, culture, science, law, physical culture, sports and the like. Although the law ‘On Non profit Organizations” does not exactly provide for a possibility of foundation of autonomous non profit organizations by the government and local governments. Though gov ernment authorities have the right of the legal entity and thus become their founders. Property assigned to a foundation or autonomous non profit organization by their founders becomes the property of corre sponding foundation or autonomous non profit organization. Founders are not liable for foundation’s or autonomous non profit organization’s liabilities. Foundation and ANO as any other non profit organization has the right to carry to pursue profit making activity, which correspondents to its statutory goals.

Some difference between Foundation and Autonomous non profit organization is expressed in surveillance arrangements for their activi ties. Boar of Trustees carries out surveillance over the foundation’s ac tivity. Formation and activity of the Board of Trustees is determined by the charter adopted by the founders. Surveillance of ANO is carried out by the founders in accordance with the procedure approved by the statutory documents. However, this difference is of a very conditional nature because the law does not provide a specified norm for the for mation procedure and functions of the Board of trustees. In those cir cumstances the founder can retain considerable share of control pow ers. And visa versa, statutory documents of ANO can determine that the founder exercises surveillance over its activity by way of participa tion in the Board of Trustees.

A wider difference between discussed organizational and legal forms is expressed in the fact the ANO founders can use its services equally with other persons. This signifies that founders can not set compulsory assignments for autonomous non profit organizations re garding social service delivery at prices differing from those set by ANO in cases of free of charge service delivery. In other words, financing of ANO should be on a contractual basis. The law “On Non profit Organi zations” does not have the same provision regarding foundation. That fact allows the founder to set direct assignments for foundation. How ever, if we build relations between the founder and foundation not on contractual basis but on administrative arrangements similar to those existing between the founder and public institution reorganization will only allow to remove from the subject of the Russian Federation (local government) subsidiary responsibilities on liabilities of institution un dergoing reorganization and exclude the latter from the treasury system of the budget execution. Moreover, the first of the above mentioned advantages is relative taking into account norms of the Civil Code re garding a possibility of holding a legal entity’s founder liable for sub sidiary liabilities in case its bankruptcy is caused by fulfillment of com pulsory assignments set by the founder.

In choosing a strategy of experimental implementation of the new organizational and legal status in the budgetary sector prior to the adoption of the new federal legislation in this sphere, it is necessary to uphold mentioned above feasibility conditions for public institutions re organization. Moreover, in order to minimize risks connected with reor ganization it is necessary to keep the following terms:

a) Select public institutions subject to reorganization from those ones, which have a high volume of extra budgetary income.

In case of legislative restrictions for attracting and using extra budg etary funds, their low level in the public institution per se does not sig nify that this public institution is unable to exist in the market environ ment. However, high level of extra budgetary income, as a rule, speaks for a high level of readiness of such public institution to survive in the market environment, first of all, it demonstrates solvent demand on the services delivered by it.

b) Reject or bring to the minimum the scale of compulsory (i.e. with out taking into consideration the opinion of the work collective) reor ganization.

This requirement was dictated by two reasons. First, it is desirable to prevent opposition to the reform from work collectives of public institu tions who have big weight in the local system of employment. Second, reorganization can be successful only on condition that public institu tions dispose of a management potential for independent economic activity. In case qualified and energetic managers are lacking there is high risk that newly founded founds or autonomous non profit organizations will not be able to adapt to the market environment, which zations will not be able to adapt to the market environment, which will bring it to the brink of liquidation.

c) Exercise mainly public control over organizations founded in the process of public institutions reorganization.

This means that Board of Trustees (Supervisory Boards) play a key role in the administration of foundation and autonomous non profit or ganizations. These boards are created with the participation of repre sentatives from the general public and they exercise main part of managerial functions, including exercising control over correspon dence of their activity to the charter provisions, review of their financial plans and accounting, approval of large transactions.

This will allow solving two issues:

First, ensure more loyal attitude of the general public to the ongo ing reforms due to their transparency and involvement of the most trustworthy representatives to the implementation of reforms;

Second, ensure greater flexibility in the economic activity of the foundations and autonomous non profit organizations and its greater orientation to market conditions and customers require ments, i.e., finally, survival of the newly founded organizations.